Category: Corporate Governance
SEC approves amendments to NYSE Manual largely eliminating requirement to deliver to NYSE hard copies of proxy materials
On March 1, the SEC approved the NYSE’s proposal to largely eliminate the requirement to provide hard copies of proxy materials to the NYSE. Prior to approval of the amendment, listed companies were required to provide hard copies of proxy materials to the NYSE under Section 204.00(B) and Section 402.01 of the NYSE Manual. Notwithstanding the requirements of Rule 14a-6(b) to deliver hard copies to the applicable exchange (from which the NYSE has obtained no-action relief), the amendment to Section 402.01 provides that listed companies will not be required to provide hard copies of proxy materials to the NYSE, so long as they are included in their entirety in an SEC filing available on EDGAR.
Corp Fin’s new twist on Rule 14a-8(i)(9), the exclusion for conflicting proposals
This proxy season, after the Corp Fin staff permitted AES Corporation to exclude a shareholder proposal on the basis of Rule 14a-8(i)(9)—the exclusion for a proposal that directly conflicts with a management proposal—the Council of Institutional Investors sent a letter to William Hinman, director of Corp Fin, raising objections to the staff’s treatment of the proposal. (See this PubCo post.) The proposal, submitted by John Chevedden, had sought to reduce the threshold required for shareholders to call a special meeting from 25% to 10%. In its letter, CII charged that AES, by including in its proxy statement a conflicting management proposal to ratify the existing 25% threshold, was “gaming the system” and urged the SEC to revisit, once again, its approach to Rule 14a-8(i)(9). But what would be the impact of the CII letter? Would the CII letter induce the staff to revisit its prior position on the exclusion? Now, Corp Fin has issued a new no-action letter, in this instance to Capital One, once again allowing a company, following the same approach as in AES, to exclude a proposal that sought to reduce the special meeting threshold from 25% to 10% on the basis of Rule 14a-8(i)(9)—but with a twist. The question is: Is that the end of the story?
EY Center for Board Matters identifies investors’ top priorities for companies for 2018
The EY Center for Board Matters has identified investors’ top priorities for companies in 2018, based on its annual investor outreach involving interviews with over 60 institutional investors with an aggregate of $32 trillion under management.
New SEC guidance on cybersecurity disclosure
Yesterday, the SEC announced that it had adopted—without the scheduled open meeting, which was abruptly cancelled with only a cryptic statement—long-awaited new guidance on cybersecurity disclosure. The guidance addresses disclosure obligations under existing laws and regulations, cybersecurity policies and procedures, disclosure controls and procedures, insider trading prohibitions and Reg FD and selective disclosure prohibitions in the context of cybersecurity. The new guidance builds on Corp Fin’s 2011 guidance on this topic (see this Cooley News Brief), adding in particular new discussions of policies and insider trading. While the guidance was adopted unanimously, some of the Commissioners were not exactly enthused about it, viewing it as largely repetitive of the 2011 guidance—and hardly more compelling. Anticlimactic? See if you agree.
SCOTUS says whistleblowers must whistle all the way to the SEC
Today, SCOTUS handed down its decision in Digital Realty v. Somers, a case addressing the split in the circuits regarding the application of the Dodd-Frank whistleblower anti-retaliation protections: do the protections apply regardless of whether the whistleblower blows the whistle all the way to the SEC or just reports internally to the company? You might recall that during the oral argument, the Justices seemed to signal that the plain language of the statute was clear and controlling, thus suggesting that they were likely to decide for Digital, interpreting the definition of “whistleblower” in the Dodd-Frank anti-retaliation provision narrowly to require SEC reporting as a predicate. There were no surprises. As Justice Gorsuch remarked during oral argument, the Justices were largely “stuck on the plain language.” The result may have an ironic impact: while the win by Digital will limit the liability of companies under Dodd-Frank for retaliation against whistleblowers who do not report to the SEC, the holding that whistleblowers are not protected unless they report to the SEC may well drive all securities-law whistleblowers to the SEC to ensure their protection from retaliation under the statute—which just might not be a consequence that many companies would favor.
What’s happening with proxy access fix-it shareholder proposals for this proxy season?
When we last left the saga of proxy access, we had just started a new chapter on so-called “fix-it” shareholder proposals—efforts to revise existing proxy access bylaws to make them more “shareholder-friendly.” You might recall that, in 2016 and 2017, John Chevedden et al. submitted a slew of fix-it proposals that requested amendments to proxy access bylaws to raise the cap on the number of shareholders that could aggregate their shares to reach the necessary 3% ownership level. Target companies, in turn, submitted no-action requests seeking to exclude those proposals on the basis that they had already been “substantially implemented” under Rule 14a-8(i)(10). In response to the requests for relief, the SEC staff took a uniform no-action position allowing exclusion of these fix-it proposals. But the proponents were persistent and, in 2017, submitted to H&R Block a different formulation of a fix-it proposal that requested only one change — elimination of the cap on shareholder aggregation to achieve the 3% eligibility threshold, as opposed to simply raising the cap to a higher number. This time, the staff rejected H&R Block’s no-action request. In essence, it appears that the staff believes that a lower cap on aggregation could “substantially implement” a higher cap, but the removal of a cap entirely is a different animal that could not be substantially implemented by the lower cap. (For more history on these fix-it proposals, see this PubCo post.) This proxy season, the proponents have latched onto—and even expanded—the new formulation and have continued to find success in preventing exclusion.
Mandatory shareholder arbitration provisions for IPOs? SEC Chair says “not on my list”
Depending on your point of view, you may have experienced either heart palpitations or increased serotonin levels when you heard, back in July 2017, that SEC Commissioner Michael Piwowar had, in a speech before the Heritage Foundation, advised that the SEC was open to the idea of allowing companies contemplating IPOs to include mandatory shareholder arbitration provisions in corporate charters. As reported, Piwowar “encouraged” companies undertaking IPOs to “come to us to ask for relief to put in mandatory arbitration into their charters.” (See this PubCo post.) As discussed in this PubCo post, at the same time, in Senate testimony, SEC Chair Jay Clayton, asked by Senator Sherrod Brown about Piwowar’s comments, responded that, while he recognized the importance of the ability of shareholders to go to court, he would not “prejudge” the issue. According to some commentators at the time, to the extent that these views appeared to indicate a significant shift in SEC policy on mandatory arbitration, they could portend “the beginning of the end of securities fraud class actions.” Then, in January of this year, the rumors about mandatory arbitration resurfaced in a Bloomberg article, which cited “three people familiar with the matter” for the proposition that the SEC is “laying the groundwork” for this “possible policy shift.” But in recent Senate testimony, Clayton reportedly put the kibosh on these signals.
In light of the recent fraud charges against audit firm partners and the PCAOB, what questions should audit committees ask their outside auditors?
Recent civil and criminal fraud charges against partners at KPMG and staffers at the PCAOB, arising out of “their participation in a scheme to misappropriate and use confidential information relating to the PCAOB’s planned inspections of KPMG,” have led some managements and audit committee members to consider whether there is more they should be doing to ensure that their outside audit firms are not plagued by similar concerns. This article from Compliance Week sifts through a speech by Helen Munter, PCAOB director of inspections and registration, to assemble a series of questions that, in light of these recent charges, may be appropriate for audit committee members to pose to their outside audit firms.
BlackRock advocates that at least two women be on each company board
The lede from the WSJ is that “for the first time,” BlackRock (reportedly the largest asset management firm with $6.3 trillion under management) is “stating publicly that companies in which it invests should have at least two female directors.” According to the WSJ, the new disclosure, just one component of BlackRock’s recently posted Proxy Voting Guidelines for U.S. Securities (more on the guidelines to come in a later post), “represents a small but significant shift for one of the largest shareholders of American companies.” Board diversity has been a consistent issue for several large institutional investors in recent years but without much specificity, and reportedly, BlackRock has, in the past, quietly encouraged companies to have a minimum of two women on their boards. Now, BlackRock is trumpeting that standard publicly.
You must be logged in to post a comment.